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Across U.S., Budgets Will Be Cut

State budgets are in the red across the country. North Carolina budget shortfall is $3.7 billion. In South Carolina, it's $800 million. South Carolina Gov. Nikki Haley suggested some cuts Wednesday night in her first State-of-the-State address. "The reality is the role of South Carolina's government in the year 2011 can no longer be to fund an Arts Commission that costs us $2.5 million. It cannot be one that funds ETV, costing taxpayers $9.5 million," she said. To get a better understanding of the challenges, WFAE's Scott Graf spoke to Lori Grange, the deputy director of the Pew Center for the States. Scott: North Carolina has close to an estimated, at least, $4 billion budget on a budget that about a year ago was about $19 billion. In South Carolina, an $800 million budget hole estimated on around what was a $5 billion budget last year. How bad off are these two states? Lori: Well, there's no question that North Carolina and South Carolina both are facing some painful decisions in this legislative session. I'd say, you know, overall there are a number of states that are facing a bit worse. Take Nevada, which has a budget gap of about 32 percent of its annual budget. New Jersey has a budget gap of about 26 percent. California, if it helps North Carolina residents feel any better, is facing about a $20 billion budget gap this year, and an estimated $20 to $25 billion budget gap for several years forward. Scott: I know the ending of some federal money is making the situation worse in a lot of states. Is there any chance that any of that money can come back, but in another form of a federal bailout, because so many states are in such a bad state? Lori: Well, from what we've seen, there's little likelihood, given the change in the makeup in Washington, of any additional federal bailout money coming to states. Certainly, states rely generally, and continue to rely generally, on the federal government for aid. In typical years, federal monies make up about 25 percent of state budgets. That's ticked up to about 30 percent because of the stimulus, so federal funding for states will continue be a significant portion of what states rely on. That said, we know that congress is thinking about cutting $100 billion in federal funding. If they move that forward it's very likely to affect state's funding in areas such as education and Medicaid, but in terms of an additional bailout such as the additional $26 billion that congress approved last year for states, we are highly unlikely to see that. Scott: Both of the legislatures here in the Carolinas are now under Republican control, so it doesn't appear that it's a likely situation here, but anywhere in the country are taxes expected to be going up in order to cover some sort of those budget shortfalls? I know that we've heard some news in terms of Illinois raising some taxes a pretty good bit. Lori: That's right. There are a few states that have put tax increases on the table. Let me take you back just a couple of years before bringing it up to the present. In fiscal year 2010, states, overall, raised taxes by about $24 billion, and that was the largest tax increase in revenue in history. Almost 30 states participated in those tax increases. Last year, for fiscal year 2011, perhaps because it was an election year, states really used that tactic to raise only $6.2 billion. Now this year, as we know, a number of new governors and legislatures, including North Carolina and South Carolina, said that tax and fee increases will not be on the table this year. We have seen a few states, you mentioned Illinois, which did recently pass a whopping increase in its income tax. In California, tax increases are on the table, along with significant spending cuts. But for the most part, most states are going to go the way of North Carolina and South Carolina by leaving tax and fee increases off the table and relying principally on spending gaps. Scott: Can you tell me, Lori, what the states that are in the best positions have in common? Lori: Sure. Well, there are a few states that have weathered the recession relatively well, better than most states, and these include North Dakota, Wyoming, Montana, and Alaska. Now the four states, in terms of what they have in common, they have more abundant natural resources (Coal, Oil). They also weathered the recession a bit better because they don't have large cities, and so in terms of there foreclosure rates, for example, those have tended to be lower than in other states. And I'd say, relatively speaking, North Carolina and South Carolina have suffered problems like foreclosures, unemployment, high unemployment rates, and the like, they have not suffered those problems as much as some of their neighbors in the rust belt and in the West Coast. Scott: Lori Grange, Deputy Director of the Pew Center for the States, thank you so much for your time. Lori: Thank you so much for having me.